Featured article:‘Where Indian growth is crooked’

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29 August 2012

By Neeta Deshpande

Economist Amit Bhaduri speaks about the current direction of the Indian economy.
… an excerpt
Why doesn’t growth trickle down to the poor?
It is not strictly true that growth does not trickle down at all. If you look at the Indian data, there is enormous concentration of the benefits of growth at the top. These people have made money because they got access to natural resources at cheap prices. To a large extent, it is probably true that the upper-middle class and the middle class have not lost out that much. Another 30-40% have more or less maintained their position.

But it is the lowest group which has paid the price for high growth. They have lost their land, rivers and mountains in the name of growth. Even if there has been a trickling down, the gap between the rich and poor has increased. Every study shows this. Even the Planning Commission and [its Deputy Chairman] Montek Singh Ahluwalia wouldn’t disagree. There are certain statistics which are robust. You can discuss, for example, whether India has 33% or 40% poverty. You can play the numbers game. But certain statistics are robust – India is growing much faster now. Similarly, as a statistical fact, it remains that there has been a huge increase in the disparity in people’s incomes.

When inequality of this kind increases so rapidly, people who are rich and gaining enormously buy goods which only the national and international corporations can produce. Whether it is fancy jeans or a fancy car, you cannot produce these in the villages. So you are continuously throwing people out, not only as consumers because their purchasing power is not increasing, but also as producers. After all, who can go to a mall? What percentage? We talk so much about retail trade – but who will buy these goods? Those below the middle class cannot buy them. This is the rule of the market.

When you build an air-conditioned mall, you cannot use traditional skills, with the result that a majority of Indians are ruled out of the growth process. This is where Indian growth is crooked because it requires growing inequality to sustain the malls, real estate businesses, etc. Also, for corporations to grow, natural resources like land, water and minerals have to be transferred to them. So there is a vicious circle in which greater inequality leads to greater growth and vice versa.
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